Platforms Have Transformed the Economy. Is Education Next?

Push a button and a car shows up. Search, click, shazam: dinner arrives. Want to make a quick trip to New York? A flight and room in a stranger's flat are a few clicks away. Perhaps you'll visit your high school friend. He appears to enjoy his grandkids.

Digital platforms have transformed the way we live, work, travel and learn. The three largest firms (by market capitalization: Apple, Alphabet (Google) and Microsoft) run platform businesses. Add Amazon and Facebook, and platform businesses account for five of the largest seven businesses.

Academics Geoffrey Parker, Marshall Van Alstyne and Sangeet Choudary explore the Platform Revolution in their new book. Here's how they define a platform:

A platform is a business based on enabling value-creating interactions between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them. The platform's overarching purpose: to consummate matches among users and facilitate the exchange of goods, services or social currency, thereby enabling value creation for all participants.

Platforms like Uber, Airbnb, Facebook, Amazon and Alibaba have transformed consumer options and markets, but most of us don't know much about how they work. This book details the key decisions that platform architects and operators make regarding governance, openness, startup, monetization and metrics.

What has caused the rise of platforms compared to those old fashioned companies that actually make stuff? The authors claim platforms beat pipelines (think supply chains) because platforms:

scale more efficiently by eliminating gatekeepers,

unlock new sources of value creation and supply,

use data-based tools to create community feedback loops, and

invert the firm (users run the place and create the value).

Scale efficiently? Unlock value? How do these things happen? The authors suggest the secret is network effects.

Network Effects
If the platform gets better with each new user, it has positive network effects. Think more customers on a phone network (same-side effects) or more merchants accepting a new credit card (cross-side effects).

Large well-managed platform communities produce significant value for each user of the platform. Value can be driven by the power of social networks (can I get connected?), demand aggregation (can I buy stuff?) and app development (can I do stuff?).

Platforms promote exchanges and "in every exchange, the producer and the consumer exchange three things: information, good/services and some form of currency." The ability to, in some way, monetize that value exchange is key to a scalable and sustainable platform.

Platforms are in the curation business; they match content and connections at scale. Most platforms use an algorithmic filter to screens out less valuable stuff. The authors suggest getting core interactions right is a function of a filter that helps match participants with some unit of value.

"Network effects turn organizations inside out," meaning users run the place. Platforms are like "information factories" that have no control over inventory. They just attract and match to facilitate value exchanges.

Will Platforms Transform Education?

The sectors that usually join the platform revolution, according to the authors, are information intensive, fragmented and controlled by nonscalable gatekeepers that maintain information asymmetries. They conclude, "Education is perhaps the prime example of a major industry that is ripe for platform disruption."

Platforms including Coursera, edX, Skillshare and Udemy have transformed informal learning and career education. Wikipedia and YouTube have made it possible for anyone to learn almost anything. The authors note that more people are using Duolingo to learn a language than all the students in the high school in the U.S. combined

Most higher education institutions have adopted a learning learning management systems (LMS). Blackboard, Canvas (Instructure), Brightspace (D2L) and Moodle account for more than 80% of the market. Adoptions may have boosted efficacy and perhaps efficiency, but most have been well short of transformational. LMS adoptions have not dramatically changed price, access or quality of higher education.

Platforms are changing the EdTech landscape. The authors observe that companies are finding themselves struggling to make sense of new competitive threats posed by unexpected, often counterintuitive rivals (e.g., HMH doesn't fear McGraw-Hill as much as it fears Amazon).

The authors speculate that it will be new models that support the "platform-based unbundling of education activities in separating the teaching of specific skills from reliance on vast, multipurpose institutions like traditional universities." They also predict that many of the 3,000 U.S. colleges and universities will be undercut by vastly better economics of platforms.

LMS have lower penetration in K-12 (particularly elementary), but lightweight tools like Edmodo and Google Classroom are widely used, and uptake has rapidly accelerated in the last two years with widespread adoption of inexpensive Google Chromebooks.

Like higher education, most K-12 platform deployments are examples of 'technology integration' rather than transformation. They facilitate textbook replacement and open content utilization. Strong deployment support personalization and extend learning.

The authors blame the lack of progress in education to over regulation, But (as discussed in February) it's not just the bureaucracy that makes education different. There are two critical factors that make education different than consumer internet: compulsoriness and intermediation.

First, most of formal education is compulsory (i.e., for degree, not for me). Required use (by teachers) and required participation (by students) probably dampens the perceived need for high engagement experiences and environments. Teachers and students often put up with weak tools compared to tools they choose for personal use.

For driven professionals, goal-directed behavior may take the place of compulsory requirements allowing them to slog through flat sequential online courses. But the autodidacts among us are few, for most people learning is relational (it happens in community). Which brings us to the second difference: education is by its very nature an intermediated enterprise.

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